CFTC swap rule keeps sportsbook bets out of federal derivatives oversight

The Commodity Futures Trading Commission has codified an interim rule stating that casino-style gambling products, including sportsbook wagers, are not swaps under the Commodity Exchange Act. SBC Americas reported the interim final rule was released on Friday, October 9, alongside a separate proposal that would define event contracts as swaps.

The rule takes effect when it is published in the Federal Register, with comments due 30 days after publication.

The exclusion and its two conditions

Two conditions decide the exclusion. The product must be offered by an operator licensed or authorized under state law or by a federally recognized tribe, and be regulated as gambling under that framework. It also must not trade on an organized exchange or another market where multiple parties bargain or conclude trades.

"Casino-style gambling products are not derivatives," Chairman Michael Selig said. "Just as the CFTC has done with respect to other products historically regulated by the states, the Commission today provides clarity regarding the limits of its regulatory remit by codifying the exclusion of casino-style gambling products from the 'swap' definition."

Casino.org reported that industry insiders called the announcement a late Friday surprise, and that critics of the split noted casino-style wagers would sit outside the swap definition while sports event contracts were being pushed inside it.

According to SBC Americas, the agency describes the rule's main benefit as reducing "interpretive uncertainty", and says it does not change any legal rights because the CFTC already treats sportsbooks as outside its jurisdiction. GamblingNews reports that the rule creates no presumption about products outside other exclusions, and that each arrangement may still need to be assessed on its structure and circumstances.

Why the CFTC moved now

The CFTC presents the rule as codification of a long-standing position, but it also arrives mid-litigation. SBC Americas reported the measure appears to be a direct response to Sixth and Ninth Circuit rulings that favored states against prediction market operators. The agency called the premise behind those rulings "erroneous", saying the courts read limits into the swap definition that are not in the statute.

Both courts sided with state regulators against Kalshi in part because they found no legal difference between a sports event contract and a sportsbook wager. If one is a swap, they reasoned, the other must be too, which would put every sports bet under federal law. The CFTC said its approach implements a suggestion from the Third Circuit's April ruling for Kalshi in New Jersey, which held that Congress gave regulators power to further define swaps for unusual products such as bingo or ping-pong.

Gambling Insider reported that the CFTC sent both rulemakings to the White House for review on September 28.

Sportsbooks, event contracts and the courts

For licensed sportsbooks, the practical change is limited. The second proposal matters more to prediction markets, since it would explicitly define swaps to include event contracts based on sports, politics, cultural and weather events.

"These products are commodity derivatives squarely within the CFTC's regulatory remit under the Commodity Exchange Act and are within the agency's exclusive jurisdiction," Selig said in that separate announcement.

SBC Americas reported the CFTC listed five ways event contracts differ from sportsbook bets:

• Event contracts trade on a central order book at prices set by the market; a sportsbook sets its own odds.
• Event contracts are cleared through a clearinghouse.
• Congress addressed "gaming" event contracts in the act's special rule on event contracts.
• Exchanges have listed event contracts under federal oversight since the 1990s.
• In the derivatives industry, these contracts are known as swaps.

The agency acknowledged that a person can achieve similar economic exposure through either product, and argued that does not make the two the same, comparing them to insurance and credit default swaps.

Kalshi cited the new rulemakings in its petition to the Sixth Circuit on October 9, the last day of the 14-day filing window. The company argues the measures reinforce the distinction between sportsbook wagers and exchange-traded event contracts, and that the Commodity Exchange Act gives the CFTC exclusive jurisdiction over derivatives on federally regulated exchanges, preempting state gambling restrictions. It is asking the original panel or the full Sixth Circuit to reconsider September's ruling for Tennessee and Ohio.

The Supreme Court is weighing New Jersey's petition in Flaherty v. KalshiEX. SBC Americas reported it drew supporting briefs from 39 states and the District of Columbia, and the National Football League. The Casino Association of New Jersey is the latest to file, arguing Kalshi's contracts are effectively traditional sports bets regardless of where they trade and questioning the CFTC's resources and its experience in gaming oversight. Gambling Insider reported the filing adds to briefs from the American Gaming Association, state attorneys general, former federal lawmakers, anti-gambling organizations and Tribal gaming interests.

The comment window runs for 30 days after publication in the Federal Register, and the CFTC says the interim rule could be revised based on the feedback. The proposal on event contracts remains open for consideration.